Family dialogue on worker coops and automation

posted by Joseph Sherman | 1734pt
November 22, 2016

Prof. Wolff's radio talks about worker cooperatives have initiated an exchange of emails in my family about their strengths and weaknesses. Here are two entries on the topic of worker coops' ability to adapt to technological change.

First, from my son, Reid Sherman. Reid is a scientist with a PhD in astrophysics from U. of Chicago.

Since you all know more about labor economics than I do, a couple of questions so I understand better:

1) Are worker cooperatives more successful in those industries that haven't had as much technological change as in others? Trying to think of good examples, and not coming up with a whole bunch, but food-related services come to mind. Technology can help a restaurant with the reservation-management and inventory-management, but since industrial dishwashing machines came around quite a while ago, the main labor of cooking and serving has not been overtaken by any robots. Are there successful worker cooperatives in industries like that?

2) Why would a worker cooperative be so resistant to new technology? If it would make a capitalist owner richer, wouldn't it make the worker owners richer and/or let them work less? If 400 laborers owned a factory, and then they could get technology where they only needed 200 workers, they could all make the same money and work half-time or retire younger. If I were in the private sector I'd be on board with working less for the same money. Or am I not understanding something important?

The following response to Reid is from my brother, Len Sherman:

One short and one longer response.

In response to your first question, obviously, some industries are more conducive to automation than others, and as a result, we've seen a steady transfer from manufacturing intensive industries to services. There shouldn't be a big shock here, as we went through a massive conversion from agricultural to manufacturing employment a century ago. Food is more abundant than ever, despite a significantly lower percentage of farmers in the workforce. While 5-star restaurants don't have to worry about losing jobs to automation in the wait staff, the industrialization of fast food sector has dramatically reduced the number of workers per dollar of revenue in this sector. And I've heard that fully automated burger flippers are on the horizon. The inexorable trend is that automation will continue to dislodge former manual labor tasks and that AI will increasingly substitute for knowledge worker tasks.

Your second question is more complex. I'm not a labor economist either, but I think the reason that worker cooperatives would be so resistant to new technology is that such forms of management may inherently lack the risk profile to keep pace with technology-driven entrepreneurship. Richard Wolff rightfully points out that worker cooperatives can operate more efficiently than capitalist organizations by avoiding bloated overhead structures. I suspect that one area likely to be skipped would be an R&D function, devoted to pioneering next generation products and production processes. As long as current products and production processes are on the efficiency frontier, worker cooperatives can actually be more profitable for its owner/workers. Now suppose in such beneficial circumstances, one of the more farsighted workers proposes at a meeting that each worker should forego some of their current compensation to fund an research effort aimed at coming up with a huge reduction in required production labor. This worker further explains that if successful, the workers would then have to agree to take on the additional risk (and loans) to fund full scale commercial implementation. And if all that worked out, the workers might then come out better by being able to work less for the same or more money, and/or retire earlier.

There are a lot if IF's in this scenario, and in theory, there's no reason a worker cooperative couldn't push for an ongoing technology investment program. But I believe worker cooperatives are more likely to seek to preserve current jobs and business practices than agreeing to divert current compensation towards investments in uncertain and long-term outcomes. If so, economists would say, such worker cooperatives have a very high discount rate with respect to investment options. Don’t get me wrong… many corporations also cling to current products and production processes as well (think Kodak, Blockbuster, Blackberry), but these companies tend not to do well (or survive) over the long run. I guess the question comes down to whether worker cooperatives are as capable as any other organizational structure to manage an enterprise effectively for long-term growth. I have my doubts. Let’s not forget that the most entrepreneurially successful companies have been run by tyrannical CEO’s (e.g. Steve Jobs, Jeff Bezos, Trevor Kalanick et al), motivated by a very different set of personal objectives than what likely would guide a worker cooperative.

This is Joe Sherman again. We are very interested to read (or hear on WBAI) what Prof. Wolff has to say on this subject.

Official response from Richard Wolffsubmitted

The research on the comparatively greater productive efficiency of worker coops vs capitalist hierarchical enterprises is pretty straight forward. You might look at University of Leeds Business School Professor Virginie Perotin's work: http://www.uk.coop/tag/virginie-perotin. Nor is there any theoretical mystery about why this would be the case. Likewise no evidence that worker coops are less open to technical change than capitalist enterprises; quite the contrary and again for both theoretical reasons and from the historical evidence. GM and Microsoft currently pay the Mondragon Cooperative Corporation to enable their scientists to work alongside MCC scientists at their research labs....as a hint.

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Richard D. Wolff is Professor of Economics Emeritus at UMass Amherst and a visiting Professor in the Graduate Program in International Affairs of the New School University in New York. Richard Wolff is also a co-founder and active contributor of his non-profit: Democracy at Work